Applying a Vrio Frameswork
Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a firm. They state that VRIO “stands for four questions one must ask about a resource or capability to determine its competitive potential:
1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? 2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] 3. The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] 4. The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?”
What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities.
Tangible Resources | Financial | * Firm’s cash and cash equivalents * Firm’s capacity to raise equity * Firm’s borrowing capacity | Physical | * Modern plant and facilities * Favorable manufacturing locations * State-of-the-art machinery and equipment | Technological | * Trade secrets * Innovative production processes * Patents, copyrights, trademarks | Organizational | * Effective strategic planning process * Excellent evaluation and control systems | Intangible Resources | Human | * Experience and capabilities of employees * Trust * Managerial skills * Firm-specific practices and procedures | Innovation and Creativity | * Technical and scientific skills * Innovation capacities | Reputation | * Brand name * Reputation with customers for quality and
1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? 2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] 3. The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] 4. The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?”
What types of resources should we evaluate (e.g., what types of resources lead to a competitive advantage)? 1) tangible resources, 2) intangible resources, 3) organizational capabilities.
Tangible Resources | Financial | * Firm’s cash and cash equivalents * Firm’s capacity to raise equity * Firm’s borrowing capacity | Physical | * Modern plant and facilities * Favorable manufacturing locations * State-of-the-art machinery and equipment | Technological | * Trade secrets * Innovative production processes * Patents, copyrights, trademarks | Organizational | * Effective strategic planning process * Excellent evaluation and control systems | Intangible Resources | Human | * Experience and capabilities of employees * Trust * Managerial skills * Firm-specific practices and procedures | Innovation and Creativity | * Technical and scientific skills * Innovation capacities | Reputation | * Brand name * Reputation with customers for quality and